Four Reasons Why it is Risky to Operate a Partnership Without a Formal Written Agreement
A successful partnership should be built on a strong foundation. This is true for both personal and professional partnership. In Florida, a business partnership—whether a general partnership, limited partnership, or limited liability partnership—should be structured around a formal written agreement. It is risky to operate a business partnership without a partnership agreement. Here, our West Palm Beach partnership lawyer highlights four reasons why it is so risky to operate a business partnership in Florida without a formal written agreement.
- The Lack of Clarity Increases the Risk of a Serious Partnership Dispute
One of the primary risks of operating a partnership in Florida without a formal written agreement is that it makes the business vulnerable to serious disputes. In the absence of a clear document outlining each partner’s roles, responsibilities, and contributions, there is a greater likelihood of conflicts arising. Partners may have differing expectations and understandings of their involvement in the business. A formal partnership agreement in place is essential for setting clear expectations.
- The Potential Ambiguity Over Decision-Making Authority
Many partnership disputes arise over decision-making authority. There should be no question as to each partner’s ability to make decisions on behalf of the business entity as a whole. Without a written agreement, it becomes challenging to ascertain who holds the authority to make crucial decisions for the business. A partnership agreement typically outlines the decision-making processes, including who has the power to make various types of decisions and how disagreements will be resolved. Without this clarity, partners may find themselves in deadlocked situations where no consensus can be reached.
- The Worse Positioning to Grow or Transition the Business (Add or Remove Partners)
Businesses are not static. A formal written partnership agreement can make it easier to transition the company to another stage—whether that means adding a business partner or removing a business partner. If there is a need to add or remove partners, the lack of a formal agreement makes the process messy and uncertain. An agreement typically outlines the procedures for bringing in new partners or handling the exit of existing ones, ensuring that the business can continue operating smoothly during times of transition.
- The Lack of Strong Protection if a Partnership Dispute Does Arise
Finally, a written partnership agreement provides a foundation for resolving disputes in a fair and predetermined manner. Without such an agreement, partners lack strong legal protection, and the resolution of disputes can become a complicated and contentious process. An agreement sets forth the mechanisms for handling disputes, such as mediation or arbitration.
Set Up a Confidential Consultation With a Top-Tier Florida Partnership Lawyer
At Pike & Lustig, LLP, our Florida partnership attorneys are standing by, ready to help you find the best path forward. We have extensive experience drafting, reviewing, and negotiating partnership agreements. Contact us now for your strictly confidential consultation. With offices in West Palm Beach and Miami, we provide top-tier legal representation throughout Southeast Florida.
